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|18 March, 2019

Hostile Japanese deal propels Abe's third arrow

The prime minister’s monetary and fiscal policies flew fast from his economic quiver after he took office in 2012

A man stands in front of an electronic board showing Japan's Nikkei average outside a brokerage in Tokyo, Japan, October 25, 2018.

A man stands in front of an electronic board showing Japan's Nikkei average outside a brokerage in Tokyo, Japan, October 25, 2018.

REUTERS/Kim Kyung-Hoon

HONG KONG  - Things are getting testier at Japan Inc. In a rare act of domestic corporate aggression, trading house Itochu snatched a degree of control over $1.8 billion sportswear maker Descente . Toshiba, meanwhile, faces a shareholder insurrection while electronics group Alps Alpine has been sued over the merger that created the company. These hostilities are helping propel Shinzo Abe’s so-called third arrow.

The prime minister’s monetary and fiscal policies flew fast from his economic quiver after he took office in 2012. Overhauling the way Japanese companies manage their balance sheets and structure themselves, though, has been slower. Revisions to the country’s corporate governance code last year helped, and Abe is pressing the case. Earlier this month, he promised to draft guidelines encouraging listed subsidiaries to have more directors who are independent from the parent companies.

Some boards are already feeling the heat. Frustrated by the leadership and strategy at Descente, which licenses brands such as Le Coq Sportif and Umbro, Itochu took the unusual step of offering shareholders a hefty premium so it could lift its stake to 40 percent from 30 percent. Success, unveiled on Friday, means it will have more clout when it comes to acquisitions and directors. With China’s Anta Sports Products backing Itochu, Descente also may be nudged to accelerate growth plans on the mainland.

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U.S. hedge fund King Street is similarly fed up with Toshiba. In an uncommonly pushy move for Japan, it said last week it would nominate a slate of directors to replace a majority of the $18 billion conglomerate’s board. That followed a dramatic profit warning. Likewise, activist Oasis Management has started legal action to unwind the January combination of Alpine Electronics with its larger affiliate, Alps, alleging that shoddy corporate governance trampled on the rights of minority shareholders.

Such actions are apt to rattle those Japanese chief executives who have ignored the changing climate, and even those who have become more receptive to shareholder entreaties. Stock buybacks have increased and in another encouraging sign, many companies have stopped adopting defensive measures such as poison pills. An acceleration of such assertive behavior should help generate better returns and overall growth, hitting Abe’s ultimate bullseye.

On Twitter https://twitter.com/jgfarb

CONTEXT NEWS

- Japanese trading house Itochu said on March 15 that it had increased its stake in sportswear maker Descente to 40 percent from 30 percent, in what amounts to a rarehostile takeover for the country. A stake of more than one third gives Itochu veto power over strategic decisions like acquisitions.

- Itochu’s tender offer, which began on Jan. 31, proposed buying shares at 2,800 yen apiece, a 50 percent premium to where they had been trading.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

(Editing by Clara Ferreira Marques and Katrina Hamlin)

© Reuters News 2019

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